Should you worry about the security issues in China?

Written by Peng Wang || June 10 2014

People prefer to keep their information in a safe place, so do nations. After the PRISM scandal information security issues has become a concern for many countries.

Information security issues worries Chinese authorities

Apparently, China decided to take a closer look at the industry as well. For instance, an article published on May 16, 2014 in China Central Government Procurement Center indicated that all the government computers are not allowed to have the Window 8 system installed.

Later, on May 19th 2014, U.S. prosecutors accused five China military officers of conducting cyber attacks on U.S. corporations to get confidential information. On May 27th 2014, according to Bloomberg, Chinese government encouraged Chinese commercial banks to switch their IBM servers to domestically-manufactured servers, as the commercial banks’ reliance on IBM servers might influence the country’s financial security. There are even rumors that Chinese banks might try to cut the ties with “IOE” (IBM, Oracle, EMC). These facts might indicate the conflicts between U.S. and China around the national security. But how do these facts influence the investors?

Investor influence

If you are an IBM executive, you might start to worry about the sales of your financial technology in China. But the situation is not as bad as it looks. At first, the rule to exclude Windows 8 systems does not imply that the Chinese government starts to abandon all foreign technology (for example, the rule does not prohibit Window 7). Firstly, Windows 8 is more expensive than its peers. Another reason might be the source code agreement, since Microsoft stopped to disclose the Win8 source code to Chinese government. In addition, this rule might hint at government’s approval for the potential development of Linux operating systems.

Someone might see this action as retaliation to American prosecutors, as IBM is also a partner with U.S. National Security Agency. But based on the resource from Bloomberg, "IBM is not aware of any Chinese government policy recommending against the use of IBM servers within the country's banking industry," Jeff Cross, a spokesman for IBM, said in an e-mailed statement. "In fact, news reports now state that China's National Development and Reform Commission has not heard of any alleged directive to that effect. IBM is a trusted partner in China and has been for more than 30 years."

Fiercer competition?

Rumors abound that the “replace IBM servers” command might be a business competition tactic by Chinese server manufacturers. Previously Inspur had announced a business plan called “I2I” (IBM to Inspur), which aimed to attract IBM business partners. Feng Wang, the information channel director and cloud computing/big data manager, indicated their business plan was working well: Inspur has attracted 4 MNC key distributors and signed contracts with 750 IBM commission agents. At the same time, Inspur also attracted 80 people in Systems and Technology Group department of IBM to join Inspur. Moreover, China Postal Savings Bank had started to test the product from Inspur Group Ltd. in March.

Windows still holds its dominant position in China. Based on CNZZ information, Windows systems still hold 84.53% of the operating systems market. At the same time, Window XP accounts for 51.71% in Chinese market, which indicated that Win8 (2.29% in the OS market) would experience a hard time making the market to accept the system. Interestingly, IBM and Lenovo also reached a deal where Lenovo would buy the low-end server service line. If U.S. government would approve the deal, the agreement of IBM server in China might be subsided lightly since part of IBM business in China will be owned by Lenovo. Whatever the outcome, the current news Windows and IBM in China do not imply the retaliation or protection policy, but do imply that the businesses environment in China is more competitive than it used to be and large corporations have to work harder to keep their leading positions in China.